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Five Banks Directed To Produce Records For Accounts At Zurcher Kantonalbank, The Bank Of N.T. Butterfield & Son Limited, And Their Affiliates

Preet Bharara, the United States Attorney for the Southern District of New York, Kathryn Keneally, the Assistant Attorney General for the Justice Department’s Tax Division, and Danny Werfel, the Acting Commissioner of the Internal Revenue Service (“IRS”), announced today that U.S. District Judge Kimba M. Wood entered an order on November 7, 2013, authorizing the IRS to issue summonses requiring Bank of New York Mellon (“Mellon”) and Citibank, NA (“Citibank”), to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at Zurcher Kantonalbank and its affiliates (collectively, “ZKB”) in Switzerland; and U.S. District Judge Richard M. Berman entered an order today authorizing the IRS to issue summonses requiring Mellon, Citibank, JPMorgan Chase Bank, NA (“JPMorgan”), HSBC Bank USA, NA (“HSBC”), and Bank of America, NA (“Bank of America”), to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates (collectively, “Butterfield”) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom.

In these actions, the Court granted the IRS permission to serve what are known as “John Doe” summonses on Mellon, Citibank, JPMorgan, HSBC, and Bank of America. The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses direct these five banks to produce records identifying U.S. taxpayers with accounts at ZKB, Butterfield, and their affiliates, including other foreign banks that used ZKB and Butterfield’s U.S. correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service U.S. clients.

Manhattan U.S. Attorney Preet Bharara said: “These actions show that the use of foreign banks for tax evasion remains a high investigative priority of this Office and U.S. citizens should understand that loud and clear. By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes.”

Assistant Attorney General Kathryn Keneally said: “These cases once again demonstrate the Department’s resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes. These John Doe Summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations. U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it’s too late.”

IRS Acting Commissioner Danny Werfel said: “International issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law. These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts even if the person hiding money overseas chooses a bank that has no offices on U.S. soil.”

IRS Offshore Voluntary Disclosure programs and initiatives enable U.S. taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income. To date, U.S. taxpayers have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield. In addition, a number of U.S. taxpayers with beneficial ownership and control over funds held in accounts at ZKB and Butterfield have admitted failure to report income earned from their offshore accounts on their federal tax returns. The IRS has reason to believe that other U.S. taxpayers who held or presently hold similar accounts at ZKB, Butterfield, and their affiliates have done the same, in violation of federal tax law. In December 2012, three employees of ZKB were indicted for conspiring with U.S. taxpayers and others to hide at least $423 million from the IRS in secret Swiss bank accounts.

Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation.

These cases are being handled by the Office’s Tax and Bankruptcy Unit. Assistant U.S. Attorney Tomoko Onozawa is in charge of the Butterfield case and Assistant U.S. Attorney Christopher B. Harwood is in charge of the ZKB case.